Good afternoon, and welcome to Asure's Second Quarter 2025 Earnings Conference Call. Joining us are Chairman and CEO, Pat Goepel; Chief Financial Officer, John Pence; and VP of Investor Relations, Patrick McKillop. I would now like to turn the call over to Patrick McKillop for introductory remarks. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's Second Quarter 2025 Earnings Results Call. Following the close of the markets, we released our financial results. The earnings release is available on the SEC's website and our Investor Relations website at investor.asuresoftware.com, where you can also find the investor presentation. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items, along with the reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and as such, involve some risks. We use words such as expects, believes and may to indicate forward-looking statements, and we encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. I will hand the call over to Pat in a moment, but I just wanted to take a moment to remind people of our upcoming Investor Relations activities. On August 18, we will be hosting a virtual NDR with Barrington Research. During September, we will attend the Lake Street Conference in New York on September 11 and participate in the Barrington Research Virtual Conference on September 16. On November 20, we will be attending the Stephens Conference in Nashville as well as the Needham Technology Conference in New York. We also expect to schedule some additional non-deal roadshows this fall. Investor outreach is very important to Asure, and I would like to thank all of those that assist us in our efforts to connect with investors. Finally, I would like to remind everyone that this call is being recorded and that it will be made available for replay via a link available on the Investor Relations section of our website. With that, I would now like to turn the call over to Pat Goepel, Chairman and CEO. Pat?

Thank you, Patrick, and welcome, everyone, to Asure Software's Second Quarter 2025 Earnings Results Call. I am joined on this call by our CFO, John Pence, and we will provide a business update for our second quarter 2025 results as well as our outlook for the second half of 2025. Following our remarks, we'll be available to answer your questions. We're pleased to report that our second quarter revenues were solid, coming in at $30.1 million, an increase of 7% versus our second quarter prior year. Excluding the impact of ERTC, revenue growth was 10%. Our revenues reflect continued strong performance from our payroll tax management product and improving attach rates of our human capital management products. On July 1, we acquired the Lathem Time Corporation, and we are excited to have them as part of the Asure family. Lathem has a storied legacy as a pioneer in mechanical time clocks and a trusted name in workforce management for over a century. It was founded in 1919 by George and Louie Lathem, who began selling time clocks across the Southeast region of the United States and is still managed by the fourth generation of the family. The company has evolved from punch clocks in its early years and transformed into a modern software provider, delivering intuitive cloud-based time and attendance solutions through its flagship platform, PayClock Online. We believe the combination of Lathem with our existing time and attendance business is a natural fit, which will allow us to achieve scale in this segment of the market. The acquisition reinforces Asure's commitment to supporting America's growing businesses with simple, effective tools to better manage their workforce and grow their business. The target customer base for Lathem, which has approximately 14,000 clients, matches well with Asure's focus on growing companies. The go-to-market strategy is very similar in nature, and a direct sales as well as a strong reseller network is available to Asure. We view the time and attendance segment as a gateway to payroll processing, and the rapid self-installation software used with the Lathem product we believe can accelerate our payroll sales and further drive the opportunity to have increased attach rates. AsurePay is an example of demand for such features such as earned wage access, where an employee's hours can be validated at the time clock or in the time and attendance system. We believe the clients of Lathem also are in need of many additional products Asure has to offer such as tax, HR Compliance, Benefits Administration, 401(k) and more. We expect the acquisition of Lathem Time Corporation to bring additional high-margin revenue to Asure. Our Payroll Tax Management product has continued its momentum as we go live with more clients each and every day, and our team has an active pipeline of new opportunities. AsurePay is a multiyear initiative, continues to make very good progress in its launch, with thousands of cards ordered by our clients and more being activated every day. In just a few years, we've accomplished quite a bit as we have been busy building out capabilities with acquired point solutions. We're investing capital to integrate these point solutions for an improved client experience, which we expect will drive our attach rates higher and ultimately drive improved organic growth. While we're in the early innings of these efforts, we have seen some positive indicators such as improved attach rates during Q2 with an increase of 400 basis points versus the year-ago period. Our suite of human capital management products is now stronger than ever and includes a well-rounded offering to meet the needs of growing businesses with Payroll Tax, HR Compliance, insurance, 401(k), and time and attendance. The total addressable market for our products is very large, and we're working to capture increased wallet share. We feel our efforts can lead us to better service our client base of over 100,000 with the best experience in the human capital management industry, whether it's small growing businesses or enterprise-level businesses. We want to be the provider of choice for our clients, offering everything they need from the first state of hire all the way through an employee's retirement. Our bookings for the second quarter declined by 53% year-over-year, primarily due to large enterprise deals, which were booked in the second quarter of 2024. Excluding those from comparison, we saw bookings increase 15% for the quarter. Our contracted revenue backlog is $82 million, up 68% versus a year ago and remains at record levels. Based on our current business trends, we're increasing our full-year 2025 revenue guidance to a range of $138 million to $142 million in revenue, with adjusted EBITDA margins of between 22% and 24%, from prior guidance of $134 million to $138 million in revenue with adjusted EBITDA margins of between 23% and 24%. This guidance includes the anticipated impact of the Lathem Time acquisition. Now I would like to hand it off to John to discuss our financial results in more detail as well as our Q3 guidance. John?

Thanks, Pat. As Patrick mentioned at the beginning of this call, several of the financial figures discussed today are given on a non-GAAP or adjusted basis. You will find a description of these GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. Reconciliations themselves are also included in our most recent investor presentation posted in the Investor Relations section of our website at investor.asuresoftware.com. Now on to the second quarter results. Second quarter total revenue was $30.1 million, increasing by 7% compared to the prior year period. Excluding ERTC revenues, we were up 10% from the prior year period. Recurring revenues for the second quarter grew 6% versus the prior year to $28.6 million and were 95% of our total revenue in the quarter. With 7% total revenue growth in the quarter, our revenue results reflect favorable year-over-year comparisons driven by Payroll Tax Management and applicant tracking products. As we discussed last quarter, HR Compliance still faces some headwinds owing to ERTC-related bundling activity in 2023. This negativity impacted our growth in the second quarter. Also, professional service revenue was a little bit weaker than we forecasted, though as we discussed on past earnings calls, this revenue can be impacted by the timing of enterprise implementations. Our organic growth was 1%. However, excluding a 4% downward pressure from HR Compliance revenue issues, organic growth was 5%. Summing up our buckets of growth, which are organic, enhanced organic and strategic inorganic, our growth was 13.5%, excluding the 4% impact to the organic I just mentioned. We believe that the second quarter was the low point for the impact of HR Compliance ERTC-related issues. Float revenue was down slightly versus the prior year period due to previous rate reductions made to the federal funds rate. However, increased average fund balances have mitigated most of that impact. We continue to model conservatively for 3 more interest rate cuts this year. Our cross-selling efforts are continuing to show good results with our attach rates, which measure clients that take more than one product, growing again by 400 basis points versus the prior year second quarter. This will be a continued focus for us during the remainder of 2025. With the recent acquisition of Lathem Time, we believe this will continue to help us drive acceleration of these attach rates. Gross profit for the second quarter increased slightly to $19.9 million versus $18.9 million in the prior year second quarter. Gross margins for the second quarter were 66% compared with prior year at 67%. Non-GAAP gross margin for the second quarter were 73% compared with the second quarter of the prior year at 73%. We continue to believe that there is margin upside over the longer term as the business scales. Net loss for the second quarter was $6.1 million versus a net loss of $4.4 million during the prior year. EBITDA for the second quarter was $1.4 million, up slightly from $1.3 million in the prior year. Adjusted EBITDA for the second quarter increased to $5.2 million from $4.1 million in the prior year, and our adjusted EBITDA margin was 17% in the quarter compared with 15% in the prior year. Turning now to the balance sheet. We ended the second quarter with cash and cash equivalents of $66 million, and we have debt of $67.4 million as of June 30, 2025. The Lathem Time Corporation acquisition, which closed on July 1, 2025, had a purchase price of $39.5 million. This was paid in the form of $37.5 million in cash provided by the MidCap Financial facility, with the remaining $2 million being paid in the form of a seller promissory note. Now I'd like to provide the backdrop for our updated 2025 guidance. During the first half of 2025, we invested in our technology to improve the client experience, added to our sales force, and invested in other areas of business to achieve our revenue and profitability goals. As we generate more revenue growth with a relatively stable cost structure through 2025, we anticipate that we will experience greater operating leverage. We are modeling for higher interest expense with the newly added debt to our balance sheet. Our third quarter and full 2025 guidance is based on continued positive momentum in our business. Now in terms of guidance for the third quarter of 2025, we are guiding the third quarter revenues to be in the range of $35 million to $37 million. Adjusted EBITDA for the third quarter is expected to be between $7 million and $9 million. We are increasing our 2025 revenue guidance from $134 million to $138 million with adjusted EBITDA margins of 23% to 24% to now be in the range of $138 million to $142 million, with adjusted EBITDA margins in the range of 22% to 24%. As Pat mentioned in his comments earlier, these guidance figures include the anticipated impact of the Lathem Time acquisition. In conclusion, we are excited about the remainder of 2025 and look forward to 2025 as being a great year for Asure in driving profitable growth and leveraging the initiatives that we have implemented across the business to drive long-term sustainable growth.

Thanks, John. We are pleased to have delivered solid results in the second quarter of 2025. During the first half of 2025, we achieved many accomplishments in growing the business, improving our technology and completing acquisitions, including a strategic deal with Lathem Time Corporation. We believe we've executed well on our strategy to deliver growth and will achieve scale benefits. While organic growth has been hampered during the first half of 2025 due to HR Compliance-related ERTC upsell activity, we believe that the HR Compliance headwind will be lessened as we move through the second half of the year. We're budgeting for increased capital spending as we work to integrate the point solutions we've acquired. Going forward, we're consolidating the point solutions to one user experience. This will increase our per employee per month capabilities from about $15 per employee per month just a few years ago to $100 per employee per month today. The sales team is making very good progress in our efforts to cross-sell and to increase our attach rates, which during the second quarter increased by 400 basis points year-over-year. We believe the increased attach rates and the per employee per month capabilities over time will lead to improved organic growth. The team here at Asure remains focused on the goal of building and growing the business to achieve scale, which we believe will result in improved profitability with adjusted EBITDA margins of 30% plus at the $180 million to $200 million revenue level. We believe that with the positive momentum that we have in our business, combined with the record backlogs and recent acquisitions, we have good line of sight of reaching this goal over the medium term. We expect the business to generate positive cash flow this year, and our model suggests we could achieve the 30% level of adjusted EBITDA margins for the fourth quarter and potentially GAAP profitability, which would be an important milestone for this business. In summary, we're very pleased to have delivered a solid performance in Q2. Our increased guidance for the full year of 2025 reflects our expectation for continued growth in the high teens range. We have a very healthy contracted revenue backlog of $82 million, which is at record levels versus last year's second quarter. We've experienced great momentum with our Payroll Tax Management product and are excited about the addition of Lathem Time to our business. We continue to feel the business is positioned well for the future. We'll continue to provide innovative human capital management solutions that help businesses thrive, human capital management providers grow their base and large enterprises streamline tax compliance. Thank you for listening to the prepared remarks that we had.

So with that, I will send the call back to the operator for the Q&A session. We have our first question from Jeff Van Rhee from Craig-Hallum.

Pat, on the Payroll Tax Management, I know obviously, the RPOs and you can see you booked a lot of business there. I know the timing around those deals have been difficult to predict. Two questions. One, where is that business now in terms of revenue? And then two, you had some big deals you've talked about, I think, Kroger, Nucor and a number of others that were potentially 7-figure ARR. It doesn't look like those have lit up yet. Just catch us up on where you are now and how some of these big deals are flowing through. And if, in fact, they're all still there, has anything slipped out of the pipeline?

No, not at all, Jeff. Thanks for your question. Regarding taxes, we are aware that competitors are listening on these calls and might use that information against us. From a backlog perspective, we've made significant progress. Some projects involve phased installations where we start with one location or business line before moving to another. This has caused slight delays, but we haven't lost any deals from the backlog. In fact, I've spoken with several clients personally, and client satisfaction is where we want it to be. A couple of projects have been phased but nothing beyond that. Looking at the first half and transitioning into the second half, we expect to install those backlogs. They may be a quarter late in some situations or phased, but we are where I want to be from a unit perspective. From a sales standpoint, I expect to secure a few decent deals this quarter. We didn't book anything major in the second quarter, but I believe we have a couple of contracts that will be finalized this third quarter. The tax business is making progress and is becoming a bigger part of our revenue, though we don't break it out individually. We'll keep you updated. Regarding the ERTC with our Human Resource Compliance product, there was a slight miss in the first half of the year, quantified by John at 400 basis points. However, we are starting to gain more than we are losing each month in the second quarter, and we expect this trend to continue in the third and fourth quarters. From a booking retention perspective, things look good. We just needed to work through the losses related to ERTC, and we are largely past that now.

Understood. And on Lathem, talk to us about the business itself. What kind of growth rate are you inheriting there? What has that business done in the last few years? And then what is the impact that's coming in for the second half here? What is the impact on the outlook in terms of the revenue you're expecting from that?

We believe Lathem aligns perfectly with our strategic direction. Their client base complements ours well, which is very encouraging. They offer nearly same-day or self-install options, allowing us to accelerate client revenue generation and increase attach rates. They've experienced around 10% growth. Historically, our acquisitions have ranged between 2 to 3 times revenue, and this acquisition is right in the middle at approximately 2.5 times revenue. The purchase price is around $15 million, with projections of $7 million in revenue for this quarter and $8 million in the first half of next year. While they have some one-time business, we aim to transition more towards a recurring revenue model. Overall, this acquisition represents a $15 million revenue opportunity growing at about 10%. It also opens up avenues for essential services like AsurePay, payroll, and HR, providing significant cross-sell potential. We are thrilled to welcome Lathem to our team.

We have our next question from Joshua Reilly from Needham & Company.

Just following up on the Lathem acquisition, how should we view the adoption of time and attendance solutions within your current direct and indirect customer base? Additionally, how does this affect your ability to further engage with that customer base regarding time and attendance solutions?

Yes, that's a great question, and I'll bring John Pence into the discussion as well. One of the improvements we've made is to our Investor Relations materials, which are available at asuresoftware.com. We noted that our attach rates weren't as high as we wanted, presenting us with an opportunity. We believe we have a solid time and attendance solution, though it has been more targeted at higher-end markets. We want to focus on self-install and same-day installation. We're also combining this with earned wage access, allowing employees to work and get paid on the same day, and crediting them for their hours tracked. We're excited about this capability and see potential for increased attach rates. In our Investor Relations materials, we mentioned that last quarter, 25% of our clients used two or more products, and that number is now up to 29%. We believe we can grow this further. Our capabilities have evolved from about $15 per employee a few years ago to nearly $100 today. I expect the attach rate for time and attendance solutions to increase significantly, especially with improvements in our booking-to-billing cycle and faster installation times. This was part of our strategy for the acquisition. With around 15,000 direct clients, the Lathem acquisition effectively doubles this opportunity quickly. From a payroll perspective, we feel very positive about our position, and we will prioritize increasing attach rates across both businesses while also advancing our per employee monthly revenue journey. John, do you have anything to add?

Yes, a couple of things. I think you talked about the 29%, I would say probably at least half of that is our clients that have time today with us. One of the things that was interesting about the Lathem business as we were talking and starting to learn about them: roughly 14,000 customers, really almost the same customer base that we're serving. When you talk to them and try to understand why they lost customers, almost all the time, they were losing customers to an integrated payroll solution. We think that there's a lot of opportunity inside of that base to cross-sell into it as well as, as Pat mentioned, the product that they've got. You can go take a look at it. They've got a store on Amazon. You can see the clock they're selling. What they've done is it's almost like a router. Everybody is taking a router home and tries to set up the Wi-Fi at their house. It takes a couple of hours to be playing around hitting some buttons, but they've got the same kind of setup, right? You take the clock, delivered by Amazon and an hour or 2 later, you’re up and running; you put your credit card down, and now you've got a subscription to their service. It's a really, really slick system. Our install is nowhere close to that with our current setup. We really thought it's kind of the wave of the future in terms of ease of use. We thought that there's a really nice attachment with the payroll, so you can offer time and payroll almost real-time setup. The last piece that we feel like is really interesting is they've already proven this out. They proved it out in the first week after we bought them. We have this AsurePay card. You can now take a Lathem clock and punch in using that card, right? It recognizes that AsurePay card. You now have this vehicle to where employees start to recognize their pay as they're punching in hourly. We just think there's a lot, a lot of attachments here. That's a really nice overlap and it goes back to the story that we're trying to do is build out the suite of products and continue to take the customers down a journey where they have more and more value out of our ecosystem.

Very helpful. Just following up here, what are you seeing in terms of core payroll unit growth over the last couple of quarters, right? Because if you look at the 1.2% organic growth in the quarter, I know that doesn't tell the full story. So is it right to assume that the core payroll units are growing closer to that 5%, which is kind of the adjusted growth? Or maybe help us understand some of the moving parts.

No, I think that's exactly right. I think that's what you would see is on average is probably about 5% when you take out the impact of the headwind.

Could you clarify what gives you confidence that the HR Compliance challenges will ease in the second half? Is it because the renewals have mainly been completed by now or during the second quarter, and there has been a significant decline in renewals for the HR Compliance/ERTC deals? What observations are you making?

Yes. I think we discussed this a bit last time, and I'll let Pat share his thoughts. We entered the market believing that there would be significant goodwill generated due to the strength of the HR Compliance product. Our expectation was that if we could provide customers with funds from the government, they would remain loyal for the long term. However, this assumption did not hold true, as many of these transactions turned out to be more transactional. Customers were primarily interested in the free ERTC money and did not fully engage with the value we hoped to offer through HRC. What we've observed is that this customer group has started to diminish since the ERTC opportunity is now behind us. That's what gives us confidence moving forward.

Yes. No, it's nothing more than that, Josh. If I look at the cohorts and if you think about when ERTC was going strong, it was in that kind of '23, '24 area. When you think about as they've rolled off '22, '23, then you got a year or so renewals, our average kind of renewal is somewhere in close to 90% range. That cohort was probably somewhere in the 40s range. As that's rolled off and then we get monthly sales numbers, monthly trip numbers, that cohort is less and less. We're selling more than we're losing each month. As that snowball continues, we'll be back to normal here pretty quickly.

The next question comes from Bryan Bergin with TD Cowen.

This is actually Jared Levine on for Bryan tonight. I guess to start here, how quickly can you drive revenue synergies with Lathem? And is any of that assumed in guidance?

No, I think we're hopeful that we can get the integration done this year, in the next few months, where we're putting a lot of energy towards it. The guide does not consider a lot of cross-sell synergies right now. We're going to focus on getting the product integrated, making a really good experience for the customer. And then figure out what does that mean in terms of upside. But no, I don't think we played a lot of upside into that for this part of the year. Fair, Pat?

Yes, Jared, I think you'll see '26, '27 be where a lot of the revenue comes in. There were some duplicate costs that have been played in this year, and some of it will be taken up. We'll do some investment as well around the integration efforts because we do feel that there's such a book-to-bill and kind of revenue synergy that kind of integration effort probably targeting towards the end of October. We might get small amounts, and if we do great. But really, it's a '26, '27 story.

Got it. I wanted to discuss the update on the revenue guidance. You raised the midpoint by $4 million, but the figure for Lathem was around $7 million. Regarding the organic guidance decrease, you mentioned some softness in professional services or that it came in below expectations in the second quarter. What factors are influencing the outlook for the second half that contributed to the organic guidance decline? Is it primarily related to professional services or are there other factors to consider?

Yes, I believe there are three key areas to consider. Initially, we projected between $134 million and $138 million. After adjusting for the $7 million, that translates to a range of $131 million to $135 million. The shift towards a phased approach in some enterprise deals is likely one contributing factor. Additionally, we experienced some delays in rolling out the Human Resource Compliance bundled with ERTC. When we provided guidance last October, we were still assessing the full impact it would have this year. On a positive note, AsurePay is performing well, with over 11,000 cards issued and nearly 1,000 activated. We are pleased with this progress, though we expect a bit of slippage in our net margin revenue model this year. Overall, we feel optimistic despite reducing our guidance by $3 million in our core business. As we increase our attach rates, particularly from a baseline of 400, we anticipate potential upside. The book-to-bill ratio around Lathem also presents opportunities in time attendance, payroll, and possibly 401(k) offerings. We've made adjustments to ensure we're well-positioned. Regarding our EBITDA guidance, we lowered it by about $1.5 million per quarter in the latter part of the second quarter. Looking ahead to the third and fourth quarters, we are focused on a revenue and EBITDA narrative. We aim to achieve 30% adjusted EBITDA margins in the fourth quarter and believe we have a chance at GAAP profitability, marking a significant milestone. Next year looks promising in terms of revenue growth and the ability to generate profitable performance.

We have our next question from Eric Martinuzzi with Lake Street.

I am interested in understanding the pipeline expectations related to the installed customer base. Specifically, you mentioned having 14,000 Lathem customers in comparison to your total of 100,000 customers. Can we identify any overlap? For example, how many of those 14,000 are already Asure customers?

As far as we know, Eric, based on our initial review, very little. So there's a lot of upside and a lot of greenfield opportunities for us.

And Eric, the only thing I would add to that, in some of the cases, we did not have an interface with Lathem. We've already kind of cross-channeled where they have Lathem and they have us, but maybe they didn't have an integration or what have you. I think there's huge opportunity in doing that. In certain markets, we didn't play in those markets because we had maybe a partnership solution, et cetera. We no longer need a partnership solution; we can go right to the Lathem integration. I think that will be a huge opportunity for us going forward. So right now, not a lot of crossover. There's some, but because we didn't have a formal integration, we don't track it as kind of one system; it's almost two systems. I think going forward, that's the opportunity.

Okay. And then second question is with regard to macro demand for the core payroll and HCM suite. Just curious, anything changed in the last 90 days with what you're hearing from channel partners, what you're hearing from direct sales reps on demand for the core product?

I think there was a slight impact in April due to Liberation Day, as people were trying to adjust to various changes. Overall, however, the demand environment has been quite strong. Our pipeline looks solid, and when I analyze our marketing metrics, including marketing qualified leads and sales qualified leads, we recently set an all-time record in a summer month that was linked to some recent regulatory language changes. Typically, changes in legislation create a positive scenario for payroll companies, as clients need to respond to those adjustments. In terms of quarterly bookings, there was a slight dip mainly due to a tough comparison with previous figures. Nevertheless, I'm optimistic about our future pipeline across all markets, and I believe we will keep improving in this area. I don't anticipate any slowdown in demand; it has been a robust environment.

We have our next question from Charles Nabhan with Stephens Inc.

I appreciate all the color around the moving pieces with the guide. I just had a quick one about the change in the margin outlook. It looks like you lowered the lower end by about 100 bps. Curious if that was attributable to a lower margin profile from the incremental Lathem revenues or if some of the other deals that were pushed out might have impacted that as well? Just trying to understand that movement in the guide.

There is a slight margin decrease expected in the near term related to the Lathem revenue compared to ours. We're optimistic about the long term, but there will be some costs we need to manage over the next 18 months, which is putting some pressure on us due to the nature of their business. We also plan to change their sales approach. Traditionally, they would sell hardware and recognize revenue from that, and then sell a software subscription. We're looking to move towards a more integrated sales model where we offer both hardware and software under a subscription model. There will be some adjustments to the model. Overall, you identified the key point; there is some margin pressure from the Lathem deal.

Got it. And as a follow-up, I wanted to drill into the new bookings from the quarter. Just get a sense for what you're seeing from a product uptake standpoint, given the broadening of your product base over the past year or so, whether you're seeing more ARPU from some of the newer cohorts, as well as if you're seeing anything different from a demand standpoint in terms of the size of employers you're selling into?

Yes, that's a great question. I believe we will maintain a focus on small businesses while expanding our offerings. Our average new sale typically involves 20 employees, and I anticipate that we will gradually increase that number over time. We will continue to cater to the under-50 employee market, but I expect a slight upward trend. Our partners have started to request a broader range of services, such as payroll tax, time management, recruiting, and benefits, and we are now teaching them how to sell and service these solutions. From a technology standpoint, we aim to simplify the process of doing business with a single user interface. We have already launched Asure ID, which helps us identify client origins and deliver products promptly. This will remain a key area of focus. In our previous quarter's investor deck, we indicated that we would prioritize attach rates, which have increased from 25% to 29%. I want to keep pushing that metric upward. I believe the Lathem acquisition will be beneficial for us. Regarding average revenue per user, we expect to see that as a key progress indicator by 2026, given our expanded product offerings. We will continue to enhance technology for seamless, product-led integration. Training is also a priority; we are preparing our service teams for a multi-product environment. From a sales perspective, our approach is shifting from individual product sales to providing comprehensive solutions. While we are still in the initial stages, we feel equipped for this transition as we have been preparing for it. Finally, we believe we have the advantages of scale and profitability, and we are on track to achieve those. We noted in our investor deck that at $180 million to $200 million in revenues, we expect to reach a 30% profitability threshold. If all goes well in the fourth quarter, we hope to achieve that and potentially hit GAAP profitability. We are making significant strides, but there is still a lot in motion.

We have our next question from Richard Baldry with ROTH Capital Partners.

You touched on it just a second ago lightly, but I wanted to ask about the cost synergies with Lathem. You said it might take something like 18 months. Do you think at that point, are they a higher adjusted EBITDA contributor because the core company would absorb a lot of the G&A overhead that you don't need from them? Or do you think they're basically in line with your long-term model?

No, I think they're very accretive and add to the overall. If you think that, I think they can be 50% or higher when it's all said and done in terms of actual contribution. Now again, it's a combination of taking costs out of our side as well as taking. There are redundancies. We have a product support team supporting our product. We have engineers supporting our product. They have engineers. They have product support. So naturally, we'll consolidate the SKUs and the offering. There are some really obvious ones. Back office, right, G&A. There’s just a lot of obvious ones, but I think it can be a very healthy contributor to the long-term EBITDA.

The other thing, Rich, too, is from a revenue perspective, we're pretty excited about is we have, let's say, a 4-week or 5-week install. This could be a day install. You get revenue quicker; it's easier, it's more scalable. We have the ability as we look at these products and services to self-install. If you think about the whole concept of earned wage access, which we have in AsurePay, now you can use the same, let's say, time card as your pay card. You have the ability where, okay, you work today, you see a 4-hour shift and you want to get it in advance on those 4 hours; you can use the same card to do that. So, a lot of stuff here that's going to open up on value proposition and revenue strategy, the direction we're going in this marketplace and the capability gives us a lot of shots both ways, whether it's the 15,000 direct payroll customers or the 14,000 time customers, I think we have the ability to do that. John mentioned some of the redundancies, and we'll focus on that during due time. So, good acquisition all the way around, a lot, a lot of potential.

Maybe to gauge the overlap, do you know what the typical headcount of a Lathem client would be, sort of a range maybe? And how similar is that to your own?

They're nearly spot on, right? They're in the low teens.

Got it. And then last for me would be this is a little larger scale acquisition than you tended to do. You have done in this space before, but how does that impact sort of your near-term appetite for other acquisitions? Does it slow down? Do you look at back sort of right-sized ones? How do we think about that broadly?

We still have a clear view of some initiatives we want to pursue this year. However, I don't anticipate any actions that will significantly impact our revenue. We plan to remain active. After completing this transaction, we have just under $30 million in cash available, which gives us the flexibility to pursue additional opportunities. We intend to focus on acquisitions moving forward. That said, I believe this deal will keep us busy for the remainder of this year and into early next year as we begin to absorb and integrate our recent acquisitions. As Pat mentioned earlier, some of the cost reductions stem from this integration process. We have made several deals over the past couple of years, and it's crucial for us to streamline our back office expenses in the near future.

We have our next question from Greg Gibas with Northland Securities.

I appreciate all the color on Lathem Time. I wanted to follow up there in terms of maybe what's involved or the steps involved with the integration and then realizing those revenue synergies? And maybe how much investment are you aiming to put towards that integration? And then just, I guess, secondly, along Lathem Time, kind of longer-term expectations on cross-sell or the attach rate that you see with both those client bases?

Yes. I think, Greg, thanks for the question. A couple of things, the longer-term attach rates on time specifically, let us get through the integration. As we look at '26, we can have some pretty firm attach rate goals and numbers, and we want to prove that out. Job 1, 2, and 3 really is the integration of Lathem and Asure as far as the integration between payroll and time, the integration between AsurePay, 401(k), et cetera, where we can get up and running quickly and offer those products. That's the big initiative that we're working on right away. Then I think you'll see opportunities around attach rates, and if you think about it, we have the opportunity to fulfill a client's obligations on time instead of, call it, 4 weeks; we call it in less than 4 days; that in itself is a big kind of move for us, both from a sales implementation process and the ability for a customer to almost self-install, if you will, we think that there's huge opportunities there. So we're excited about it. We believe that's it. I think more to come in '26. We introduced in the investor deck, both kind of the revenue PEPM model, and we can give a little bit more color here as we look to guide towards 2026.

Got it. That's helpful, Pat. And then if I could, on organic revenue growth expectations in the back half, what's kind of implied there? Would you expect maybe the cadence to differ between Q3 and Q4?

Yes. I think just in general, if you think about how we thought about Lathem, where it's roughly $7 million in the second half or so, that would imply that I think last year, we mentioned that we would grow about half organic and half inorganic. If you think at $134 million to $138 million, we were trying to achieve double digits here in the second half. We do run into some tougher compares in the second half. If you think about that single digits in the second half, as we integrate all our products and services and get the attach rates up, we think that organic growth is the outcome of that. We're set up to do that. I think this second half of the year would be in the single digits. We're trying to grow attach rates and PEPM to get to a double-digit organic growth company. We're making investments in the front end of the business to continue to grow organically, and we're doing that. One of the things is, we’ll continue to grow our feet on the street. More importantly, it's that cross-sell component because as we drive a bigger wallet share, we think that will lead us to scalable profitable growth. Finally, as we look at the fourth quarter, I think if we can make a marker towards profitability, whether we get there or not, we're right there. We have the ability then to generate cash, grow more and more revenue organically, and continue to look at scale. These businesses are scale businesses. To put a stake in the ground that we can grow in a very profitable way is important for us as the long-term health of the business.

As we move into the fourth quarter, we believe that if we can demonstrate progress towards profitability, it will position us well. We have the potential to generate cash, increase our revenue organically, and continue to focus on scaling our operations. Establishing that we can grow profitably is crucial for the long-term viability of the business.

Okay. Well, operator, can I take it home?

Yes, sir, sure.

Okay. Well, listen, a longer call today. We had a lot of news to share. I feel like we've made tremendous progress in the business. I know some of you have been long-term investors, and we appreciate your interest in Asure. We're going to continue to build out and grow this business. We're making really good progress. It's not always straight up, but I'll tell you what, we're going to continue to move, and we have some milestones in sight that are pretty attractive to all of us, and we want to see those to fruition. So really appreciate your time today. I look forward to talking to you soon. Thank you.

Thank you, sir. Ladies and gentlemen, the conference of Asure Software has now concluded. Thank you for your participation. You may now disconnect your lines.